Matchtech has now released their full year results for the year ending 2013.
Overall revenues were up substantially with Engineering revenues increasing by £26.7M and Professional Services revenues up £10.9M. Costs of sales were also up but to a lesser degree so gross profit was £2.3M better than last year at £38.4M. Admin costs also increased, driven by a one-off £425M restructuring cost, incurred during the reorganising the group into the two current segments, that meant Operating profit was £2M higher. A small increase in both bank interest and taxation gave an annual profit of £7.5M, £1.8M higher than last year. Clearly this is a very pleasing result.
Total assets were up a hefty £7.1M during the year, driven predominantly by a £5.8M increase in trade receivables. Other assets to increase were software licences, deferred tax assets, prepayments, cash and other receivables. Liabilities were also up with a £4.2M increase in contractor wage credits, a £773K increase in tax liabilities, a £842K increase in deferred income and £348K increase in other payables. These were mitigated by a £3.8M fall in bank loans which meant that net tangible assets were up £4.5M to £31.7M which gives a bit more of a healthy gearing ratio.
Pleasingly, cash profits were nearly £2M up on last year at £12.1M before increases in both receivables (due to more business as the sales outstanding actually decreased to 48.9 days) and payables gave a cash generated from operations figure of £11.5M, £2.3M higher. Slightly higher interest and a higher tax payment due to increased profit meant that net cash from operations was up by £1.9M to £8.5M. There was some cash spent on capital expenditure, but less than last year and £105K was made from the issue of new shares. Most of the cash was spent on dividends, however, which was £52K higher at £3.7M. All of this left the cash inflow standing at £4M which helped to further improve the net cash position.
By segment, profit was up in both Engineering and Professional Services and the majority of profits are still made in the Engineering sector. All of the profits were made by the UK office and the German office is still slightly loss making, although this has improved somewhat over last year. Overall Engineering NFI was up 7% and strong demand for contract labour meant that contractors on assignment increased by 500 to 5,500. Government spend and international growth were positive trends and give a positive outlook to engineering in general. In Professional Services, NFI was up 12%. Fees from permanent recruitment improved by 5% with a weighted improvement in the second half of the year. The demand for highly skilled labour continued to outstrip supply and the time to hire period remained longer than pre-recession levels.
This year, the group has simplified its structure and restructured the business into Engineering and Professional Services – this does streamline things and helps to hide the worst performing business units which is probably not just a coincidence. As part of this, the group launched Connectus, a new brand that was formerly the Information Systems and Technology sector within Matchtech. So far, the new brand is trading strongly and has already won some higher margin business. The acquisition of Provanis, a niche Oracle recruitment agency will help the brand expand further and it is being integrated well.
The NFI for the engineering business has grown across most sectors with only Aerospace (down £100K to £3.2M) and Science (down £100K to £1.1M) falling. The most important sector, infrastructure increased fees by £300K and accounted for £5.7M of fees. Next was energy, up £200K to £4.8M; then Automotive, up £300K to £3.5M and Marine, up £300K to £3.3M. General Engineering did very well, up £700K to £2.4M.
Although based in the UK, Matchtech has won contracts in the Middle East, China and North America. The Infrastructure sector includes major engineering projects in water and waste infrastructure, roads, rail and property. Matchtech is now n year 5 of the water industry’s Asset Management Plan and work on that has slowed as certain phases near completion. Design work is due to start again next year so recruitment volumes should rise again for that. Environment and Waste grew very well with a 56% increase in placements. New EU legislation in this area should drive investment and increase opportunities for the group. Investment in rail projects continued with key UK projects being complemented by overseas projects such as the Doha, Riyadh and Dubai metros. The highways market is also buoyant with many local and central government projects taking place. The group is currently recruiting for some very large projects including Doha airport and the Heron Plaza in London.
In the Energy sector, the group is working on some large scale UK oil and gas projects and demand is strong across both power generation and transmission. In nuclear, there is no clear news with regards to new power stations but there are some projects involving the decommissioning of old stations and the Trident submarine programme. There are also a number of projects involving renewable energy. The Aerospace sector saw demand for engineers in many areas. There were several airbus projects moving from the design phase to manufacture and despite the lack of growth this year, management are more confident about next year. Automotive benefited from the UK car industry’s increased sales to the BRIC economies and demand for engineers was strong in key clients JLR and BWM. There were also opportunities with Chinese OEMs during the year. There were increased vacancies n Marine for the shipbuilding programmes taking place in Canada, Abu Dhabi, Italy, America and Romania and the group also won some contracts closer to home with opportunities in leisure and commercial recruitment, particularly in luxury yacht building. In the Science sector, pharmaceutical and biotechnology sectors remained busy and private healthcare showed strong demand for radiographers and biomedical students. Performance in Germany was poor and NFI was down by 11% as there was a lack of aerospace projects that relied very heavily on Airbus. Automotive was flat over the year but energy showed some growth.
Connectus, the new brand is focused on SAP, business intelligence, project management, automation, networking, software development and cyber security. The business has gained traction by adding 135 new clients to make the total 435. Barclay Meade serves the procurement, HR, Sales, Marketing and Finance areas. During the year the NFI increased by 8% and the client base grew by 100 to 400. It was decided during the year that the business would exit from Executive Search and Financial Services to focus on the other, higher margin areas. The exited markets accounted for 13% of Barclay Meade’s NFI. Alderwood works within Welfare to Work and work-based learning provision. There was strong demand and NFI increased by £100K to £1.2M. In contrast to the other parts of the business, Alderwood generally fills permanent vacancies and the introduction of government skills funding and university tuition fees have driven considerable demand in the work-based learning market. Although the group are strongly positioned for further growth in these areas, there is currently no desire to increase headcount.
This year it was announced that founder and long standing chairman, George Materna was stepping down in December. As mentioned in a previous update, he will be replaced by Brian Wilkinson who arrived with a lot of international experience in the recruitment industry. George will stay with the group and become non-executive deputy chairman, replacing Andy White who will himself remain on the board as a non-executive director.
In recruitment, the middle market has suffered in the recession and is shrinking, probably being replaced by internet job boards and candidates finding new positions through social media. Matchtech has been mostly unaffected by this as they focus on higher margin niche engineering roles. The group has one client that it is quite dependent on, which accounted for 13% of revenues this year, an increase from 12% last year. The client is Xchanging, which was originally the procurement arm for their BAE contract but has now been cross-sold across most of the group’s brands. This client does only account for 7% of NFI, however, and there are 1,600 clients in total.
After the end of the year the group purchased Application Services Ltd, trading as Provanis which is a niche technology recruitment business for a cash total of £4M paid for by a placing of just over 1M new shares. The acquired group will fit in with group’s current rebranded technology business, Connectus. The group are looking to invest in both IT and HR and have budgeted £1M for this next year
Overall, this is a very positive update. Revenues were up across both business sectors, profit was up £1.8M to £7.5M, net tangible assets increased by £4.6M to £31.7M and there was a positive cash flow of £4M despite an increased £3.7M being paid out in dividends. The group seem to be targeting IT for investment and net debt is being reduced in a steady way, down by £4M on last year – the figure in 2013 is £10.5M. This debt is still on the high side in my view and a 1% movement in interest rates would have an effect of reducing profit by £292M. After an amazing rally, the share price has doubled in since last year and current P/E is a fairly toppy 17.9 and next year is predicted to be 16.3. After a 15% increase in the dividend payment, the yield at the current share price is still fairly decent at 3.3% and covered two times by earnings, with the cash generative nature of the business at present I would not be surprised to see further increases at the half year stage. Despite the recent share price hike, these still seem pretty good value to me.
On 15th November the group released a trading update. It was stated that performance was in line with expectations with like for like NFI up 13% on the same period of last year with contract NFI up 14% and permanent fees up 11%. It was also noted that as the UK economy recovers there are the first signs of permanent contract confidence returning. Overall a very decent update.
On 6th February, the group released a statement covering the first six months of the year ending 2014. It was stated that they continued to trade well and that full year results are likely to come in slightly ahead of expectations. Net Fee Income during the first half of the year was £22M, 15% up from the same period of last year. It also seems the integration of Provanis is progressing well and it has traded within expectations. Contract NFI was 13% up at £14.9M and despite a 300 reduction of contractors from their largest client, the number of contractors on assignment remained the same. Permanent Fee Income increased by 19% to £6.3M. The only slight bit of disappointment was the net debt level, which at £8.7M was below that of the end of the year but still above the position that it was at this time last year. Overall a good update.